Market imperfections, wealth inequality, and the distribution of trade gains

Arbeitspapier

Globalization increasingly involves less-developed countries (LDCs), i.e., economies which usually suffer from severe imperfections in their financial systems. Taking these imperfections seriously, we analyze how credit frictions affect the distributive impact of trade liberalizations. We find that free trade significantly widens income differences among firm owners in LDCs: While wealthy entrepreneurs are better off, relatively poor business people lose. Intuitively, with integrated markets, profit margins shrink - which makes access to credit particularly difficult for the least affluent agents. Richer entrepreneurs, by contrast, win because they can take advantage of new export opportunities. Our findings resonate well with a number of empirical regularities, in particular with the observation that some liberalizing LDCs have observed a surge in top-income shares.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Papers ; No. 10-06

Classification and Topics

• Classification: Wirtschaft ; Macroeconomic Analyses of Economic Development ; Trade Policy; International Trade Organizations ; Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
• Subject: wealth inequality ; trade liberalization ; credit market frictions ; top incomes ; Finanzmarkt ; Unvollkommener Markt ; Kapital ; Einkommensverteilung ; Internationale Wirtschaft ; Optimale Verteilung ; Wirtschaftswachstum ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Foellmi, Reto ; Oechslin, Manuel
• Event: Veröffentlichung
• (who): University of Bern, Department of Economics
• (where): Bern
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/76754
• Last update: 10.03.2025, 11:43 AM CET